The Insititute for Fiscal Studies has said that the loss of the single market will hit British banks hard.

The Institute for Fiscal Studies (IFF) said today that the Brexit will come at a cost for the UK financial-services industry, regardless of the secured by the government as it negotiates with the European Union, according to Bloomberg.

In its published report, the Institute said that banks may be hit hard if Britain loses single-market access as firms would lose the passporting rights that allow them direct access to the EU. It added that maintaining access is likely to require membership of the European Economic Area (EEA), and with it “potentially considerable costs of a regulatory regime that the UK will no longer be in a position to help shape.”

The future of financial services outside the EU will form a key part of the negotiations.

Suggested articles

As yet, the UK has not decided what kind of relationship it wants to build with the the EU after the Brexit decision but as a driver of economic growth and a major contributor to UK tax receipts, the future of financial services outside the EU will form a key part of the negotiations.

Ian Mitchell, an IFS research associate who contributed to the report, said that membership of the single market offers “significant economic benefits, particularly for trade in services but outside the EU, single-market membership also comes at the cost of accepting future regulations designed in the EU without U.K. input. Choices in these domains will most likely be far more important than any deal on budget contributions. This may be seriously problematic for some parts of the financial-services sector.”

The IFS added that being part of the EEA would require Britain to adhere to rules on free movement of labour and continue paying into the EU budget. “For now, the financial costs are outweighed by the potential impact of lost trade agreements.”

The IFS also said that the Brexit could weaken the public finances by up to £39 billion ($51 billion).